Production within an economy differs from income due to its residents.
GDP measures the value of final goods and services produced within an economy over a period. GNI measures income accruing to its residents, including net primary income from abroad. Residence is an economic connection to an economy, not a passport. Neither GDP nor GNI is household disposable income: business income and other components do not all become money households can immediately spend.
- GDP
- Gross domestic product (GDP) measures the value of final goods and services produced within an economy over a period.
- GNI
- Gross national income (GNI) measures income accruing to residents. It adds income received from abroad to GDP and subtracts income paid abroad, using the primary-income definition below.
- Watch for this
- Residents are people and organisations whose ongoing economic activity is based in the economy. Economic residence is not the same as citizenship or the nationality of an owner.
Read the label on the income measure
Final output
Final goods and services are counted at their end use. Flour used to make bread is an intermediate input: counting both its value and the full value of the bread would count the flour twice. Value added counts only what each production stage adds.
Domestic and national
Primary income comes from work or ownership, such as wages, profits and interest. Net primary income from abroad means receipts from abroad minus payments abroad. A positive net amount makes GNI larger than GDP; net payments make it smaller.
Household resources
Household disposable income is income available after direct taxes and cash transfers; a real measure also allows for prices. Consumption and access to public services help assess living standards alongside GDP or GNI. GDP per capita is output per person, not a household pay packet.
Worked example: Production and income need not match
An overseas-owned factory produces locally and pays some profits to its non-resident owner. Residents also receive income from investments abroad.
- The factory's domestic production contributes to GDP.
- Income paid to non-residents and primary income received from abroad affect the relationship between GDP and GNI.
- Net primary income received from abroad makes GNI higher than GDP; net payments make it lower.
Watch out for this
GNI counts citizens, wherever they live.
Use residents, not citizenship. A citizen living and working long-term abroad may be a non-resident for national accounting.
Check your understanding
GDP rises after a foreign-owned factory expands. Why might GNI rise by less?
- Production by any foreign-owned factory is excluded from GDP.
- Some additional primary income accrues to non-residents.
- GNI measures only government revenue.